It's true, of course, that we are big supporters of DIY investing, which means we're naturally drawn to equities. And we don't think a well-informed private investor will do any worse than the large proportion of the active equity fund managers who underperform their benchmarks year in, year out - and, worse still, charge handsomely for it.
Equally, we don't believe that all active managers are bad - and we'll regularly interview those who have proved themselves excellent stewards of investors’ cash, and who most certainly are worth the few percentage points they charge each year. Our readers seem to agree; many of their portfolios – like this week's reader portfolio. - contain a mixture of funds and equities.
This demonstrates a sensible pragmatism, and reflects our belief that investors should put their money anywhere they're likely to achieve returns that meet their investment objectives, whether it be shares, funds, bonds, stamps or any other asset. And good index-tracking funds can create a stable and efficient, beta-driven 'core' within any well-constructed portfolio, with risker, non-correlated 'satellite' holdings that could include individual shares adding the alpha.
We also recognise that sometimes funds are the only sensible way to access themes or markets that otherwise wouldn't be easily investible, like emerging markets or global corporate bonds. The rise of exchange traded funds (ETFs) means that this diversification has recently become even easier and cheaper – the average annual cost of an ETF is around 0.5 per cent.
However, regulatory concerns over the sale of certain types of ETF to retail investors has created a general wariness that means many still avoid them altogether, though. That's a shame, because as we highlight in our recently-launched ETF column, there are plenty of these instruments that are perfectly suitable for retail investors to hold on a longer-term basis and which are great for on-the-fly asset allocation.
For traditionalists, though, there is another type of traded fund that can provide similar exposures: investment trusts. These popular vehicles are also a useful, often low-cost way to tap into pretty much any esoteric trend you could think of. They employ some of the best managers in the business. And because of the way they're structured and priced they can sometimes be bought at unjustified discounts. That means they're as close to the stock-picking ethos of the IC as funds get - you can see which ones we particularly like in our special investment trust feature.
